Daily Profit Compass May 14

Tickers discussed: SPY QQQ IWM    Strategy & Tactics

The Daily Profit Compass provides the stock market analysis for the day. Key levels and trading locations for the indexes are provided, along with trading plans and timely commentary to keep you on the right side of the trade.

Trader’s Couch – Will Return

Earnings

 

News Flow

  • Unemployment new claims 2.9M in line with expectations.  8 week totals near 35M
  • Futures soggy with Bonds and $USD higher
  • Market fades Powell ( like it always does ) as he projects gloomy outlook. Mnuchin begins happy talk in an attempt to hold things together.
  • $WFC at $11 year low and M&A chatter begins ( We’re short )
  • Second waves of Covid wash across Asia hampering recovery efforts.

Traders hit the Exit

The bounce scenario I presented yesterday afternoon and in the chart annotations somewhat in jeopardy. We’re testing support from yesterday. If it holds, it will be a great trade location to anchor a long. If it fails we go much lower.   Stay fluid and flexible in your thinking.

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For new members or if you missed it from yesterday.

  • You’ll in no doubt hear the “retest the lows” crowd come out of the woodwork today. Ignore them.  In order to retest the lows price needs to break the next level of support. One step at a time; we trade level to level and don’t need to make proclamations about the destination. This could be nothing more than a 50ema test, then we rip to new highs. Level to level. Carve that in your desktop.
  • If nothing more, technicals / chart reading give you objective things to look at and from which to make decisions. When you review the charts below on the indexes, they all followed the same script. Trend line break / key support level break / impulsive selling.  Yesterday was more dramatic than most but trend line breaks are indicative of the first move of a trend reversal. They usually  generate either a buy signal or a sell signal. Look for and take notice when you see it. Price usually does not react as violently as yesterday but it usually does react.
  • Risk Management. We’ve had a ton of bullish winners on our trade ideas / set ups over the past 2 weeks. I hope you got your fair share and today’s rug pull didn’t clip you too badly. Although some of you have likely been sick of me saying, manage risk, roll higher, raise stops, spread your position etc. But for those that actively did any / all of those suggestions, you were stopped out as either winners or fractional losers. Risk management means loss prevention and as we’ve discussed, loss prevention is way more important than capital gains. Continuously trailing stops prevents winners from becoming losers. ( ask me how I know; I’ve seen plenty of nice wins evaporate and it sucks. )  Yes I know….the last time you trailed a stop you got stopped out and then the stock reversed and went higher without you. Sorry, that’s trading. You can always jump back in when the danger disappears.
  • A day to take notice.  There was a change of character in the market today. That change may last 2 days or 2 months. It’s a time you clean up loose longs, reduce positions and exposure. You re-examine what is and what is not a core holding. Embrace flexible thinking and be open to the possibility that this “new bull market” is at least temporarily over.  Remember, you’re neither a bull nor a bear, you’re a leaf on a stream effortlessly flowing with price. You don’t care where price goes, you’re ready to make the turn if / when prices signals it. It may mean hunting short set ups instead of long ones. Hey, that was easy!!
  • Time frame is everything. A comment by me that AAPL lost its 60m trend line and to sell it is meaningless if you are NEVER selling AAPL or are trading the weekly time frame. If that is you, you can sell call premium as price goes lower. There is a strategy for everyone, you just need to know your time frame. If my commentary does not mess with your time frame on a particular stock or even on the indexes, ignore it.
  • Who is in control? Big picture, the bears made a powerful opening statement, but the trend on longer time frames is still up. One day does not change a trend just possibly start one. I have a feeling conditioned dipsters will let us know at some point they are alive and ready to buy. If you see shallow bounces, and a series of lower highs and lower lows, bears have the ball. If you see strong bounces, and especially if overhead levels are recaptured, bulls are likely re-asserting themselves.

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Sector Summary

Broad selling with cyclical’s taking most of the heat while defensive’s held up better.

Oscillators

$NYMO = minus 44   $NAMO = minus 25    Moving down as you’d expect after 2 days of selling but not over sold.  Room to move further down without being overdone.   Sit taller in your chair if / when these go below minus 60.

Wave 2 DATA

5/14 Jobless Claims / 20 yr bond announcement

5/15  May Option Expiration /  Empire State MFG Survey / Industrial Production / Retail Sales / Business inventories

Strategy and Tactics 

The 2 days of selling indicate an emerging trend change. This change rotates the thinking towards hunting for short set ups and looking to fade rips.  We are not to the level of going gonzo short but more toward taking select shots and keeping overall short exposure within reason. THose that have been riding the recent bull wave should re-orient quickly.  Honor what ever stops you had on long ideas which is also time frame dependent.

Opened WFC Jun 22.5P

Rolled down XLF to may 22   $20.5P    Rolled down KRE to Jun $31P      Closed GLD for a loss; bad trade

FAAMG Update & Trading Guidance

  • $FB – 60m trendline violated; lost $210 ‘ you should be out
  • $AAPL – Broke its 60min trend line; vulnerable for a back test of 300; you should be out if on short time frame.
  • $AMZN – $2375 was taken out which was our stop; you should be out
  • $MSFT – 60m TL violation; lost $180; you should be out. Strong stock to try and short but technically, below $180 vulnerable to further pull backs.
  • $GOOGL – you should be out on drop below stop and breakout level.

 

Index Chart Review

SPY Daily

SPY 2 hr

SPY 30 min.

QQQ Daily

QQQ 2 hr 

QQQ 30 min

IWM Daily

IWM 2 hr

IWM 30 min

 

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